Mortgage Qualification Criteria Changing Soon
Friday Jun 26th, 2020
I was lucky enough to patricipate in a virtual meeting with our in-house mortgage advisors yesterday. Steve and Rob discussed the changes coming to CMHC (Canada Mortgage and Housing Corporation) insured mortgages and how they may differ from conventional mortgages. We also discussed a few points of interest that we, as agents, should be discussing with our buyer clients when looking to buy a property, refinance their current property or shop for mortgages during the current COVID-19 pandemic.
Here are a few highlights:
- A CMHC mortgage will require at least one appliant to have a minimum credit score of 680
- At the present time, Genworth and Canada Guaranty is NOT making these changes to their qualification criteria
- Your TDS (Total Debt Service ratio) is going down from 44% to 42% meaning the amount of your total income you spend on housing must decrease by 2%
- Your GDS (Gross Debt Service ratio) is going down from 39% to 35%. This is similar to TDS but also includes money you spend on heat, maintenance fees and property taxes.
- Under previous regulations, a household income of $120,000 would likely allow you to spend $565,000 on a house. Under the new criteria, that number drops to $502,000, plus your insurance premiums
- This likely will decrease buying power by up to 10% and up to 5% of applicants may no longer qualify for a mortgage
- With layoffs and reduced work hours under the current pandemic, lenders now require paystubs as recent as 14-30 days as opposed to 60 days
- Homes are being appraised differently right now as many inspectors cannot enter houses for health-related reasons - exterior photos, pictures through windows, digital floor plans and virtual tours are being used to calculate a home's value
- An increase to consumer debt is expected as well as a decrease to credit scores, more refinance requests, more high-interest "B" lenders and private lenders being used, and eventually an increase to income tax to pay back the government-provided assitance programs
- The current sales volume is expected to remain low for the rest of 2020 but recover quickly in 2021, with Toronto likely being the quickest to recover
- The Bank of Canada benchmark rate is currently 4.94%
- Be careful of the recently-advertised 1.99% mortgages - there are very high penalties to release, and may are NOT portable. They will not use the discounted rate to come up with a penalty which could result in a penalty of tens of thousands of dollars
- Right now, the best conventional mortagage rate is 2.44%
Please feel free to ask any questions you might have, and if any of this might affect your buying decision, I can help break it down for your specific situation.